Retail, Office Sectors Nudge CMBS Deliquencies Up

Increased volatility in the office and retail sectors boosted the deliquency rate on commercial mortgage-backed securities by two basis points to 0.41% in June, according to Fitch Ratings. While overall delinquencies increased only mildly for the fifth consecutive month, the retail and office sectors led the index with net increases of $70.5 million and $62.2 million, respectively.

Fitch says the retail sector remains under pressure. ‘An increase in retail bankruptcies and a continued decline in consumer disposable income are evident, though they have yet to impact retail performance,’ said Susan Merrick, Managing Director.

Retail loan delinquencies increased 25.7% month-over-month, due to the addition of 15 newly delinquent loans located across 12 different states. Loans secured by retail properties represent 28.1% of the Fitch rated universe, and 13.2% of the overall loan delinquency index. Isolating the delinquent retail loans and comparing them to all retail loans in the Fitch-rated universe, the sector’s delinquency index has ticked up slightly to 0.21%, from 0.17% in May. Despite relatively stable performance to date, Fitch said it remains concerned about the retail sector.

Recent store closings, including continued bankruptcy filings of tenants such as specialty retailer Linens ‘n Things and discount-apparel retailer Steve & Barry’s, will impact retail performance.

The uptick in delinquencies within the office sector represents a 32% increase over May’s total of $222.3 million. However, the sector continues to perform relatively well, with only 0.19% of all office loans in the Fitch rated universe delinquent. Loans secured by office properties comprise 29.9% of the Fitch rated universe, but represent less than 13% of all loan delinquencies.

Hotel delinquencies rose slightly in June, as three loans ranging in size from $2.3 to $5.4 million were added to the index. Hotel loans comprise 10.3% of the Fitch rated universe and 5.0% of the overall loan delinquency index. Of all hotels in Fitch-rated transactions, 0.22% were delinquent in June.

Multifamily properties continue to represent a disproportionate number of delinquencies. Though they represent only 14.6% of the Fitch rated universe, multifamily properties accounted for 57.0% of all delinquencies in June. Approximately $1.3 billion of delinquent multifamily loans remained outstanding, giving the sector a delinquency index of 1.77%.

Fitch notes that of the newly delinquent loans, approximately one-third came as a result of maturity default, with borrowers unable to refinance precisely at their maturity date. The seasoned delinquency index, which omits transactions with less than one year of seasoning, rose by one basis point, ending the month at 0.47%. Five transactions totaling $20.5 billion became newly seasoned.